Credit or debit? For routine purchases, Americans are likelier to say debit.
U.S. card issuers would prefer a different answer. Credit brings in far more revenue. First, the banks charge higher “interchange fees,” fees paid by merchants, on credit card purchases. Then, if you don’t pay off your credit card, the issuer levies interest and finance charges.
So what's their strategy for getting you to use the credit card? Temptation. Issuers have loaded up their high-end credit cards with travel perks and other rewards.
It seems to be working. In a survey of U.S. consumers conducted every year by card processor Total System Services, Inc., or TSYS, the popularity of debit has been falling for several years. In 2016, credit overtook debit as Americans’ favorite form of payment.
Last year was also when JPMorgan Chase launched a new premium credit card, the Chase Sapphire Reserve card, to much fanfare. So many people signed up, most of them millennials, that Chase temporarily ran out of cards. American Express counterattacked in March by sweetening the perks on its premium Platinum card. An Amex executive said the company is in “hand-to-hand combat” with Chase to win over new card customers.
“You have issuers offering better rewards to try to get the attention of the consumer,” said David Robertson, publisher of the Nilson Report. “There’s a war on among the top players.”
Spending on both credit and debit cards generally rises each year, as the economy grows and as cards gradually take more share from checks and cash. But credit card use has been accelerating faster.
The companies have slowly made it easier to qualify for credit cards, nine years after the global financial crisis. Consumers are also feeling less inhibited about taking on debt, Robertson said.
And how they love their rewards. Asked in the TSYS survey about the favorite feature on their credit card, 59 percent cited rewards. That’s up seven points in two years, making rewards twice popular as any other card feature.
While generous travel benefits are the main perks of premium credit cards, the vast majority of consumers are more focused on getting cash back.